The rise of the PetroYuan has not been far from our headlines in
the last year, with China increasingly leveraging its rise as an
economic power and as the most important incremental market for
hydrocarbon exporters, in the Persian Gulf and the former Soviet Union,
to circumscribe dollar dominance in global energy – with potentially
profound ramifications for America’s strategic position.

And now, as AP reports, for the first time in history, China has
docked a Navy Destroyer in the Southern Iranian port of Bandar-Abbas –
right across the Straits of Hormuz from ‘US stronghold-for-now’ Bahrain
and UAE.

And now, as AP reports,
for the first time in history, China has docked a Navy Destroyer in a
Southern Iranian port of Bandar-Abbas – right across the Straits of
Hormuz from ‘US stronghold-for-now’ Bahrain and UAE.

Adm. Hossein Azad, naval base chief in the southern port of Bandar
Abbas, said the four-day visit that began Saturday saw the two navies
sharing expertise in the field of marine rescue.

“On the last day of their visit while leaving Iran, the Chinese
warships will stage a joint drill in line with mutual collaboration, and
exchange of marine and technical information particularly in the field
of aid and rescue,” said Azad.

The report said the destroyer was accompanied by a logistics ship,
and that both were on their way to the Gulf of Aden as a part of an
international mission to combat piracy.
…
Last year a Russian naval group docked in the same port on its way back from a Pacific Ocean mission.

The move is also seen part of off efforts by Iran to strike a balance
among foreign navies present in the area near the strategic Strait of
Hormuz, the passageway at the mouth of the Persian Gulf through which a
fifth of the world’s oil is shipped.

U.S. Navy’s 5th Fleet is based in nearby Bahrain, on the southern coast of the Gulf.

History and logic caution that current practices are not set in
stone. With the rise of the “petroyuan,” movement towards a less
dollar-centric currency regime in international energy markets—with
potentially serious implications for the dollar’s broader standing—is
already underway.

As China has emerged as a major player on the global energy scene, it has also embarked on an extended campaign to internationaliseits currency. A
rising share of China’s external trade is being denominated and settled
in renminbi; issuance of renminbi-denominated financial instruments is
growing. China is pursuing a protracted process of capital account
liberalisation essential to full renminbi internationalisation, and is
allowing more exchange rate flexibility for the yuan. The People’s Bank
of China (PBOC) now has swap arrangements with over thirty other central
banks—meaning that renminbi already effectively functions as a reserve
currency.

Chinese policymakers appreciate the “advantages of incumbency” the
dollar enjoys; their aim is not for renminbi to replace dollars, but to
position the yuan alongside the greenback as a transactional and reserve
currency. Besides economic benefits (e.g., lowering Chinese businesses’
foreign exchange costs), Beijing wants—for strategic reasons—to slow
further growth of its enormous dollar reserves. China has watched
America’s increasing propensity to cut off countries from the U.S.
financial system as a foreign policy tool, and worries about Washington
trying to leverage it this way; renminbi internationalisation can
mitigate such vulnerability. More broadly, Beijing understands the
importance of dollar dominance to American power; by chipping away at
it, China can contain excessive U.S. unilateralism.

China has long incorporated financial instruments into its efforts to
access foreign hydrocarbons. Now Beijing wants major energy producers
to accept renminbi as a transactional currency—including to settle
Chinese hydrocarbon purchases—and incorporate renminbi in their central
bank reserves. Producers have reason to be receptive. China is, for the
vastly foreseeable future, the main incremental market for hydrocarbon
producers in the Persian Gulf and former Soviet Union. Widespread
expectations of long-term yuan appreciation make
accumulating renminbi reserves a “no brainer” in terms of portfolio
diversification. And, as America is increasingly viewed as a hegemon in
relative decline, China is seen as the preeminent rising power. Even for
Gulf Arab states long reliant on Washington as their ultimate security
guarantor, this makes closer ties to Beijing an imperative strategic
hedge. For Russia, deteriorating
relations with the United States impel deeper cooperation with China,
against what both Moscow and Beijing consider a declining, yet still
dangerously flailing and over-reactive, America.

Looking ahead, use of renminbi to settle international hydrocarbon
sales will surely increase, accelerating the decline of American
influence in key energy-producing regions. It will also make it
marginally harder for Washington to finance what China and other rising
powers consider overly interventionist foreign policies—a prospect
America’s political class has hardly begun to ponder. By Tyler Durden